Provincial tax authority cannot invoke Crown interests in access to information matters, rules commissioner

A produce retailer that was targeted by provincial tax authorities won a legal battle after the Quebec Access to information tribunal held that Revenu Quebec must turn over information to the company as “Crown priority” cannot be invoked by the agency in access to information matters.

The decision, a welcome development that took the tax legal community by surprise, appears at first glance to hand taxpayers, particularly those who have been charged or are facing criminal charges, with a tangible means to obtain information that the provincial tax authority may be reluctant or unwilling to share, according to tax lawyers.

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Quebec taxman launches program that rewards whistleblowers

More than four years after the federal government introduced an offshore tax evasion tip line to fight offshore tax evasion and aggressive tax avoidance, Quebec’s tax authority is following suit by launching a whistleblower program that will offer monetary rewards.

The new whistleblower program will pay whistleblowers rewards of up to 15 per cent of anything above $100,000 the Quebec taxman recovers in a tax fraud investigation. The exact percentage of the whistleblower’s reward will depend on the “quality and usefulness” of the information, according to a Revenue Quebec interpretation bulletin. The informant’s “level of cooperation” too will play a role but the provincial taxman does not stipulate, not even in its bulletin, what that entails. Neither does the Quebec tax authority explain what it means that it is offering a reward to “offset the potential personal, social and professional consequences of reporting another taxpayer.”

The program, which complements Canada Revenue Agency’s Offshore Tax Informant Program (OTIP), only deals with information involving anti-avoidance or shams. Anonymous whistleblowers will not be rewarded by the program. Instead, informants must identify themselves and if the information is deemed to be pertinent, the whistleblower must sign a contract to “define the parties’ respective commitments,” according to Revenue Quebec documentation. The reward will be paid only once amounts have been recovered and all deadlines for objection or appeal by the taxpayers have elapsed. The reward will be taxed.

Confidentiality, always a sticky point, is not promised. While the Quebec taxman says it will protect the informant’s identity, it does leave open the door for confidentiality to be breached. Revenue Quebec says there is a possibility that informants may be called to testify as a witness in legal proceedings. In such cases, the tax authority will notify the informant before deciding whether to continue the proceedings

Revenue Quebec already has an existing whistleblower program that allows taxpayers to report, even anonymously, a person or business they suspect is not meeting its tax obligations. But it does not offer financial incentives.

The new whistleblower program was launched as part of the “Tax Fairness Action Plan” tabled by Quebec’s minister of Finance, Carlos Leitao on November 2017. The action plan contains 14 actions that address tax havens, aggressive tax planning, transfer pricing and e-commerce with suppliers having no significant presence in Quebec.

“Offering a reward, in a well-structure framework, could be an efficient enticement to encourage people who have pertinent information to transmit it to Revenue Quebec,” said Leitao in a statement. “This information will allow it to act more efficiently to detect more rapidly tax avoidance strategies.”

Revenue Quebec’s expectations may have to be dampened. While the U.S. taxman’s whistleblowing program has led to recovery of “significant” unreported tax dollars and successful tax prosecutions, the CRA’s program has “to date had limited success,” points out David Chodikoff, a Toronto civil and criminal tax litigator with Miller Thomson LLP in an article published last year in the Canadian Tax Journal. But Chodikoff hastens to add that though it may too early in the program’s existence to pass judgment on its efficacy, the program faces unique challenges that Americans do not. Namely, the Canadian Charter of Rights and Freedoms.

“Once the predominant purpose of an inquiry by the CRA is the determination of penal liability, the taxpayer’s rights as secured by the Charter are fully engaged” thanks to sections 7 through 11 of the Charter, notes Chodikoff. And Charter challenges, he adds, are common in criminal tax matters.

The landmark ruling by the Supreme Court of Canada in the Jordan case further complicates matters due to the introduction of a numerical ceiling. “It is hard to imagine that the Jordan decision would not have an impact on the potential conduct of a tax prosecution in Canada,” said Chodikoff, Miller Thomson’s national leader in tax litigation.

Revenue Quebec can issue demand letters to third parties outside of the province

The Quebec Court of Appeal has ruled the province’s tax authority can issue demand letters and request the disclosure of financial information from third parties outside the province to determine whether a taxpayer is subject to the province’s tax laws.

The precedent-setting ruling will potentially have a substantial impact as it is widely expected to spur Revenue Quebec to issue more demand letters to third parties outside the province even though questions remain over the scope of the ruling, tax lawyers say.

“Demand letters are a very powerful tool,” pointed out Nicolas Simard, a Montreal tax litigator with Fasken Martineau DuMoulin LLP. “They are used to obtain information and documents of a person in the course of an audit and while tax authorities generally use them correctly, there have audits that have gone awry and that transmuted into a fishing expedition with auditors asking for documents they had no right to obtain. Given that this is sometimes the case, it is frightening that following this decision Revenue Quebec will have the power to issue demand letters in other provinces.”

In January 2014, Revenue Quebec launched an investigation of an Alberta trust it suspected had activity in Quebec. During an audit of several Quebec corporations, a Revenue Quebec investigator discovered a cheque signed by a beneficiary of the trust who lives in Montreal. As part of its investigation, the tax authority issued a demand letter for the disclosure of banking information of a numbered company, 1068754 Alberta Ltd., which was the sole trustee of DGGMC Bitton Trust, held by a National Bank branch in Calgary. The demand, issued under s. 39 of the Tax Administration Act, sought to determine whether the trust was subject to the Quebec Taxation Act. The National Bank did not contest the demand and provided the requested documents which were held under seal pending the outcome of the court case.

The trustee challenged the demand and argued that it was ultra vires of Revenue Quebec’s powers under s. 92 of the Constitution Act, 1867 because Quebec is entitled to direct taxation only within the province. The trustee also argued that under ss. 461(1) and 462(2) of the Bank Act that the demand, issued under penalty of prosecution, was invalid because it was sent to a bank branch outside Quebec and was therefore extraterritorial.

The Court of Appeal dismissed the arguments and upheld the decision of Superior Court Justice Thomas Davis. The court noted that both the Quebec Tax Administration Act and the Bank Act are silent over whether the Quebec tax authority has the power to issue demand letters to parties outside the province.

Nevertheless, the court found that Revenue Quebec did not exceed its territorial authority nor did it exercise its powers of taxation or of audit outside Quebec by issuing a demand letter to the National Bank’s Calgary branch. That’s because the demand was a not a legal measure that falls within the scope of ss. 461(1) and 462(2) of the Bank Act. Rather a demand is an administrative proceeding and “such communication is purely accessory,” said Justice Marie-Josée Hogue in 1068754 Alberta Ltd. c. Agence du revenu du Québec 2018 QCCA 8. Justices Paul Vézina and Geneviève Marcotte concurred with the reasons.

The court also found that while Revenue Quebec sent a demand to a branch outside the province, it in fact constitutes notice to the bank as a whole, given the branch is not a separate legal entity for the purposes of the demand. It is a “notification sent to a bank with respect to a customer of a bank” within the meaning of s. 462(2) of the Bank Act. In other words, s. 462 (2) does not confer a branch with a “distinct legal personality,” said Justice Hogue.

Moreover since a demand only seeks to obtain information and documents in the bank’s possession and is not intended to have an “effect” on the goods belonging to the client, it too is not covered by subsection 462(2) of the Bank Act, explained Martin Delisle, a Montreal tax lawyer with De Grandpre Chait LLP.

“Almost certainly the decision will encourage Revenue Quebec to relay demand letters more frequently outside of Quebec and more specifically to the other provinces,” remarked Delisle.

But it is far from clear whether the Appeal Court’s decision will apply to Canadian financial institutions whose headquarters are not in Quebec, added Delisle. The Appeal Court pointed out that because the National Bank’s headquarters is based in Quebec, the demand was not extraterritorial. But the court did not explicitly state whether its finding applies to Canadian financial institutions whose headquarters are not in Quebec, noted Deslisle.

It may be time therefore for Revenue Quebec to seriously consider signing a Tax Information Exchange Agreement (TIEA) with the other provinces, said Simard.

As of the end of 2017, Canada had signed 23 TIEAs with countries that are in force, two that are signed but not in force, and five that are under negotiation.

“If states are obliged to sign tax information exchange agreements with other nations to obtain information why not the provinces when the information that tax authorities are seeking is found in another jurisdiction?” wondered Simard, a position that Delisle, too, holds.

“There’s a reason why these exchange agreements exist and are necessary — and that’s because Canada has no jurisdiction outside of its borders to demand information from another state,” Simard added.

To the surprise of tax lawyers, the Court of Appeal also held that bank documents are documents that carry with them an expectation of privacy. A formal demand constitutes a seizure when the taxpayer has a reasonable expectation of privacy in respect of the documents and information required, held the court. “That is a very important finding because it applies to companies as well,” said Delisle. “Since a formal demand constitutes a seizure, it must be examined whether the demand letter was exercised without violation or was validly exercised.”

This story was originally published in The Lawyer’s Daily.

Decision may grant tax authorities with much leeway

Quebec Superior Court overturned a ruling that held that the investigative methods used by federal and provincial tax authorities to investigate corruption in the Quebec construction industry were “highly reprehensible,” paving the way for Canada Revenue Agency and Revenue Quebec to once again pursue tax evasion inquiries that were put on hold for the past two years.

In a series of concurrent decisions, Quebec Superior court Justice Daniel Payette held that the investigation conducted by tax authorities did not contravene the leading Supreme Court of Canada decision in R. v. Jarvis, [2002] 3 SCR 757, which draws a distinctions between civil tax audits and criminal tax investigations.

In Jarvis, the SCC stated that a CRA auditor may shift his focus during an inquiry into a taxpayer’s affairs from a civil tax audit to an investigation. But once the “predominant purpose” of the CRA’s inquiry becomes investigative, an adversarial relationship between the taxpayer and the state takes hold because “of the liberty interest that is at stake.” CRA officials are then obliged to caution taxpayers and make them aware of their right to remain silent and the right to counsel under the Charter. If the CRA believes that the taxpayer has documents that are necessary to its investigation, the tax authority must obtain warrants in order to lawfully search and seize taxpayer records.

Court of Quebec Judge Dominique Larochelle held in Agence du revenu du Québec c. BT Céramiques inc., 2015 QCCQ 14534 that the evidence produced to charge the owner and three other company officials of a Montreal company, B.T. Céramiques, was obtained illegally because federal tax officials crossed the “Rubicon” and failed to inform the taxpayers that the inquiry had turned into a criminal investigation, thereby breaching their right to freedom from self-incrimination and right to reasonable expectation of privacy guaranteed under s.7 and s.8 of the Charter of Rights and Freedoms. Moreover, Judge Larochelle found that CRA’s probe into B.T. Céramiques and its officials overstepped the boundaries from an audit into a criminal investigation when a tax official obtained information that some CRA civil servants might have been corrupted. She concluded that the purpose of the CRA investigation, known as Project Legaux, was to investigate B.T. Céramiques —  and certain CRA officials.

Judge Larochelle also held that evidence obtained by Revenue Quebec during the course of its own investigation against the same company and individuals was inadmissible because it originally stemmed from the CRA investigation. That finding seemed to suggest that the “fruit of the poisonous tree” doctrine, an American doctrine first described in 1920, too applies in Canadian tax law.

But Superior Court Justice Payette was not swayed by the evidence, overturned the lower court ruling, and ordered a new trial. He found that there was nothing illegal about the investigation conducted by the taxman, and held that the CRA internal and criminal probe on its employees were not “pertinent factors” that should be considered when applying guiding principles of the Jarvis ruling. Justice Payette also held that the fact evidence from Revenue Quebec’s subsequent investigation was “fueled” by the CRA probe should not necessarily lead to the exclusion of evidence obtained by the provincial tax authority.

“The decision essentially is based on the fact that Justice Payette takes the position that there was no evidence to support the findings of fact mostly determined by the Court of Quebec judge,” noted Montreal tax lawyer Christopher Mostovac who plead the case for B.T. Céramiques and its officials. “But there’s no question that if this decision stands it really is an important decision regarding the way that Jarvis should be interpreted by the lower courts so in that sense it potentially has very big implications.”

Justice Payette’s decision, if it stands, will likely change the way that federal and Quebec tax authorities approach audits and criminal tax investigations as it would allow them “a lot more flexibility” to determine when they can shift the focus of an inquiry from a civil tax audit to a criminal tax investigation, added Mostovac, who said he will appeal the decision.

“Under Jarvis the rule is simple but hard to interpret: the moment an auditor has in his own mind established that he has found an indication of a tax criminal or penal offence, he has no choice but to cease using his audit powers,” explained Mostovac of Starnino Mostovac. “That’s the way Jarvis should be interpreted and the way it should be maintained. Some would argue that Justice Payette’s decision changes that.”

Part of the challenge is that the test in Jarvis is at best ambiguous and it can very difficult to determine when tax authorities have crossed the “Rubicon,” said Paul Ryan, Montreal tax lawyer with Ravinsky Ryan Lemoine LLP. While the SCC held that the Rubicon is crossed once the “predominant purpose” of the CRA’s inquiry becomes investigative, Ryan pointed out that the nation’s highest court also states that the “mere existence” of reasonable grounds that an offence may have occurred is by itself “insufficient to support the conclusion that the predominant purpose of an inquiry is the determination of penal liability.” Even where reasonable grounds to suspect an offence exist, it will not always be true that the predominant purpose of an inquiry is the determination of penal liability, added the SCC.

“It is not clear in Jarvis when the Rubicon is crossed because of the ambiguousness of the predominant test” said Ryan. “One almost has to put oneself in the minds of tax officials and how do you prove what they were thinking at the time. I think that the Supreme Court will eventually have to review the matter to provide more guidance.”

The Payette decision also plainly states that tax authorities do not have to be transparent with taxpayers when conducting an audit. According to Justice Payette, the Jarvis decision does not state that the taxman must divulge evidence that led it to launch an audit nor is it obliged to adopt a “transparent approach” with taxpayers during an audit. “On the contrary,” said Justice Payette in R. c. BT Céramiques inc. 2017 QCCA 4262.

That is a troubling finding, according to tax lawyers. Mostovac believes that when tax officials conduct a criminal tax investigation, it is understandable to carry out investigative tactics that include elements of surprise.

“But for audit, that’s a different story,” said Mostovac. “There has to be a cooperative approach between the taxpayer and the tax system because otherwise taxpayers will no longer believe in the tax system. It would be terrible for the system.”


The other concurrent decisions by Justice Payette include:

Agence du revenu du Québec c. BT Céramiques inc., 2017 QCCS 4233

Bruno c. R., 2017 QCCS 4261

Appeal court orders seized material to be sealed in Uber case

Nearly six months after 20 Revenue Quebec officials raided the Montreal offices of Uber Canada Inc. as part of a tax investigation, the popular ride-sharing service won a legal battle against the provincial taxman after the Quebec Court of Appeal overturned a lower court ruling and held that the seized evidence must be sealed.

The succinct 12-page ruling will likely pave the way for more applications for impoundment as the courts and tax authorities grapple with the challenges posed by e-commerce, disruptive business models, and technology, according to tax lawyers.

“The ruling demonstrates that the courts and tax authorities have no choice but to adapt to today’s technology,” noted Alexandre Dufresne, managing partner of Spiegel Sohmer in Montreal. With laptops, smartphones, tablets likely to contain business — and personal — information, “the courts are coming to grips over how to deal with the issue of search warrants and privacy, which is a constitutionally protected right.”

The San Francisco-based firm first launched in Montreal in 2013 as a mobile application that allowed users to hail a cab using their smartphones. In late 2014 the firm drew the ire of tax drivers – and the attention of authorities — after it introduced its UberX service, which allows people to use their own cars in order to offer lifts to customers for money. Montreal taxi drivers, like elsewhere around the world, have argued that Uber enjoys an unfair advantage, compromises their ability to make a living, and is illegal. Montreal’s taxi bureau has ramped up its efforts to crack down on UberX drivers and seized more than 400 vehicles last year.

In May 2015, six months after the launch of UberX, Uber faced more legal headaches. Revenue Quebec obtained two search warrants under the Tax Administration Act to seize computers, cellphones, tablets and documents from Uber’s Montreal offices, based on a sworn statement that alleged that information contained in the high tech devices would prove that it breached tax laws. Following the execution of the warrants, Uber brought a certiorari application before Superior Court seeking to quash the warrants, based on provisions of the Code of Penal Procedure, the Quebec Code of Civil Procedure as well as the Canadian and Quebec charters. While awaiting the outcome of the certiorari application, Uber also applied for a safeguard order, requesting that the seized be impounded based on articles 8 and 24 (1) of the Canadian Charter.

The trial judge, heeding guidance from an Quebec appeal court decision in Constructions Louisbourg Ltée c. Agence du revenu du Québec 2011 QCCA 1636, refused to grant the application for impoundment. The judge held that allowing Revenue Quebec to examine the seized material would not cause Uber irreparable harm, that Uber’s expectation of privacy with respect to regulated activities was low, and that the balance of convenience weighed in favour of the taxpayers’ right to have tax laws respected and investigations seen through to the end.

The Quebec Court of Appeal overturned the ruling. In a unanimous decision in Uber Canada Inc. c. Agence du revenu du Québec 2016 QCCA 1, the three-judge panel held that the lower court judge “erred in his assessment” of the harm Uber would suffer if the impoundment was denied. The appeal court noted that the seized documents in the Louisbourg case were “exclusively” commercial, and were seized by Revenue Quebec from Revenue Canada offices, under no objection from Louisbourg.

That was not the case in the Uber case, pointed out the appeal court. The property seized at Uber’s Montreal offices contained information that was not “strictly commercial.” Rather, there is a “significant risk” that the information found on the laptops and smartphones belonging to Uber employees was private in nature, and beyond the scope of the search warrants. In a catchy phrase that will likely be repeatedly cited, the appeal court noted that “information cannot be unlearned and documents cannot be unread.” The scope of the seizure, the premises where the searches were performed, and “the allegations by Revenue Quebec read in conjunction with the minutes of the seizure sufficiently demonstrate” the existence of irreparable harm, held the appeal court.

“Following the Louisbourg decision, there were doubts within the legal community whether applications for impoundment had a chance of succeeding,” said Montreal tax lawyer Paul Ryan. “The appeal court reiterates in the Uber case that the expectation of privacy is relatively low when it comes to commercial documents.  But it also points out that devices such as smartphones and laptops contain both commercial and private information — and the expectation of privacy in that case is much higher.”

The ruling also underscores the need for the courts to develop a body of guidance that will provide a clear framework for authorities when executing search warrants and seizing materials such as high tech devices, said Ryan. Often times judges do not provide detailed instructions in search warrants to authorities, creating “legally ambiguous and uncertain” situations, added Ryan. Until well-defined boundaries are spelled out by the courts, Ryan believes that the Uber decision will likely make it easier to obtain motions for impoundment.

Granting an order to impound until final judgment is rendered over the challenges to the search warrants  would not cause prejudice to the provincial tax authority, said Louis-Frédérick Côté, a Montreal tax litigator who used to work for Revenue Quebec. It is an interim measure that protects the taxpayer.

“The seized material has been in Revenue Quebec’s hands for several months, and we don’t know what they have done with it,” said Côté. “Are civil servants analysing it, perhaps. Have civil servants downloaded material from the devices, perhaps. It is difficult to unread what you have read. That’s why orders to impound are important. In the meantime, the tax authority suffers no harm.”

Revenue Quebec ordered to pay $2.4 million

Revenue Quebec was ordered to pay $2.4 million, including $1 million in punitive damages, to a Montreal business after the Quebec Court of Appeal found that the provincial fiscal authority abused its powers and acted maliciously and in bad faith.

In a decision that sternly rebukes the provincial tax authority for abusing its “extraordinary powers,” the appeal court ruling held that Revenue Quebec owes a general duty of care and good faith to taxpayers as well as an “obligation to compensate” taxpayers who were the victims of wrongful conduct, according to tax lawyers.

Montreal’s Groupe Enico Inc., a company specializing in industrial automation and robotics, first came under the scrutiny of Revenue Quebec in 2007. By the end of the ordeal, owner JeanYves Archambault had to close his firm.

The decision marks the third time this year that Canadian appellate courts have held that fiscal authorities have a duty of care towards taxpayers, a development that may signal the end of non-accountability for both the Canada Revenue Agency (CRA) and Revenue Quebec, observed Ētienne Gadbois, a Montreal tax lawyer with Dentons.

Earlier this year, in Canada v. Scheuer, 2016 FCA 7, the Federal Court of Appeal concluded that “liability may attach” if public officials act in a manner “inconsistent with the proper and valid exercise” of their statutory duties, in bad faith or in some other improper fashion. In the other case, the British Columbia Court of Appeal accepted an agreement between Prince George businessman Irvin Leroux and the CRA that ends a long-running legal battle, leaving intact the finding by B.C. Supreme Court that the CRA breached the expected standard of care in its assessment of penalties for alleged income tax violations.

“The Enico decision is definitely in line with the Leroux case which too held that tax authorities have a general duty of care to taxpayers,” said Gadbois. “The Quebec appeal court also said that Revenue Quebec has a duty of good faith under the Civil Code. So while Revenue Quebec have discretionary powers, there are limits. It’s clear that tax authorities will have to be more aware of taxpayer rights.”

Enico’s Kafkaesque bureaucratic nightmare began in 2007 when two Revenue Quebec employees, one who incredulously posed as an intern even though he was an auditor with over 20 years of experience, paid a visit to the company’s headquarters after a disgruntled employee who launched his own competing business denounced the company. When the tax department claimed he owed $325,000 in back taxes, Archambault testified that his life was “turned upside down.” Compounding the situation, the tax department held on to nearly $1 million in research and development tax credits Enico was counting on to carry on business and obtain further financing.

The situation then took a dramatic turn for the worse. Revenue Quebec lost track of a payment Enico made but nevertheless forwarded Enico’s tax file to its collection department, which quickly lead Enico to be considered delinquent. Other inexplicable and costly transgressions took place. Files and notes were either lost or intentionally destroyed.

François Boudrias, the same auditor who masqueraded as an intern, was especially taken to task by the appeal court. Boudrias should have identified himself as a tax auditor and should have told Enico and Archambault that he was carrying out an income tax audit, said appeal court Justice Dominique Bélanger in a unanimous 38-page ruling in Agence du revenu du Québec c. Groupe Enico inc. 2016 QCCA 76. Boudrias, who used the bank deposit method to audit Enico, also had the duty to inform Enico the method he intended to use to conduct the audit and “the burden this method” would place on Enico and Archambault. His “silence constituted a trap for Archambault,” said Justice Bélanger. Boudrias also displayed gross malice with respect to Enico’s expense accounts, which he “knowingly” counted twice. This conduct constituted carelessness, recklessness, or serious incompetence tantamount to bad faith, concluded Justice Bélanger. (Boudrias heeded the recommendation of his union and resigned on November 2009. At the time, he had a disciplinary record for inappropriate consultations and for illegally passing on files to his spouse, an accountant. He is now being sued by Archambault.)

Incredibly, Enico’s miseries got even worse. In February 2008, Revenue Quebec proceeded with two bank seizures, including the company’s line of credit, only to realize that it made an error and rescinded one of the seizures. But the damage was done. Enico’s bankers lost confidence, with one recalling its loan and credit line as well as refusing to make good on Enico’s pay cheques. Employees then lost confidence in the firm, and many quit. Numerous clients and partners of the firm also ended their business relationship with the company.

The firm was healthy before the upheaval. Its revenues rose from $1.8 million in 2001 to $5.6 million in 2007. Following Revenue Quebec’s gaffes, it was forced to close shop in November 2010. When Enico filed for creditor protection, Revenue Quebec continued to hound the firm, going so far as to refuse an offer of 80 cents to the dollar unless Archambault dropped his lawsuit against the tax department. “Abuse of power may take many forms,” said Justice Bélanger. In this case, Revenue Quebec used its “extraordinary powers” to keep Enico’s scientific research and development tax credits “in its own coffers,” seized a bank account without judicial authorization, “imposed its views” during meetings of the company’s creditors, and obtained a judgment against Enico under section 13 of the Tax Administration Act, which amounted to harassment. “The evidence established a causal connection between Revenue Quebec’s faults and Enico’s financial problems,” held the appeal court.

“This ruling reiterates the principle that a right holder cannot use its rights in an abusive manner, even if the right holder is the government or a government institution – and even if the nature of the right is discretionary,” noted Louis Tassé, a Montreal tax lawyer with Couzin Taylor LLP. “The appeal court also confirmed that there was improper conduct, some of which is indefensible like hoarding Enico’s tax credits. I don’t understand how Revenue Quebec could believe that such conduct was acceptable.”

But the appeal court also mildly rebuked the trial judge for criticizing Revenue Quebec’s internal management policies. Quebec Superior Court Justice Steve Reimnitz reproached the provincial tax department for failing to investigate the merits of the denunciation, particularly since it was the denunciation that drew Revenue Quebec’s attention to Enico and its founder. Evidence during the trial revealed that Revenue Quebec took no steps to determine whether the denunciation had valid grounds or whether it was done to cause harm. The appeal court said his criticisms were unfounded. “Revenue Quebec is not required to verify allegations or inform the respondents of its existence,” said Justice Bélanger. Nor did the trial judge have any reason to examine whether Revenue Quebec uses a quota system to reward auditors as that was beyond the scope of the issues at hand in the Enico case.

“According to the appeal court these are not legal issues,” said Gadbois. “The fact that an auditor receives a fixed salary plus a bonus at the end of the year was deemed by the appeal court to be irrelevant to the determination as to whether damages should be paid in this case.”

But that position is problematic, and may hamper access to justice, said Yacine Agnaou, a Montreal tax lawyer with Dupuis Paquin. According to tax experts, the Enico case is far from unique. What makes it exceptional is the accumulation of faults, said Agnaou who asserts his law firm meets with entrepreneurs literally every day who face Revenue Quebec’s scrutiny – and the majority of them don’t have the means or the will to battle the provincial tax department.

Indeed, Lyne Guilbault, Enico’s lawyer, said that the company’s founder would not have battled the tax department had he known the price he would have paid. His life is in shambles, and his health poor. Archambault would have declared bankruptcy, as many entrepreneurs do when faced with the prospect of fighting Revenue Quebec, said Guilbault. “The important thing about the ruling is that it holds the State to account,” remarked Guilbault. “It does not enjoy total immunity but rather its immunity is relative. When you have extraordinary powers, it must be used with great care.”

Revenue Canada investigation highly reprehensible, says court

A “highly reprehensible” and illegal probe by the Canada Revenue Agency that failed to draw the distinction between a civil tax audit and a criminal tax investigation has put into jeopardy several tax evasion criminal cases involving Quebec construction companies and corruption charges against former federal civil servants, according to tax experts.

In a precedent-setting ruling that appears to bring more clarity to the leading Supreme Court of Canada decision in R. v. Jarvis , [2002] 3 SCR 757, Court of Quebec Justice Dominique Larochelle held that the evidence produced to charge the owner and three other company officials of a Montreal company, B.T. Céramiques, was obtained illegally because federal tax officials crossed the “Rubicon” and failed to inform the taxpayers that the inquiry had turned into a criminal investigation, thereby breaching their right to freedom from self-incrimination and right to reasonable expectation of privacy guaranteed under s.7 and s.8 of the Charter of Rights and Freedoms.

In Jarvis, the SCC stated that a CRA officer may shift his focus during an inquiry into a taxpayer’s affairs from a civil tax audit to an investigation. But once the “predominant purpose” of the CRA’s inquiry becomes investigative, an adversarial relationship between the taxpayer and the state takes hold because “of the liberty interest that is at stake.” CRA officials are then obliged to caution taxpayers and make them aware of their right to remain silent and the right to counsel under the Charter. If the CRA believes that the taxpayer has documents that are necessary to its investigation, the tax authority must obtain warrants in order to lawfully search and seize taxpayer records.

““The issue in Jarvis was a very simple one: when do those powers of constraint against taxpayers that an auditor has can no longer be used because the objective is now to gather evidence for the purpose of prosecution,” explained Montreal tax lawyer Christopher Mostovac who successfully plead the case. “In this particular case, it obviously deals with when an audit becomes an investigation but it also examines if the actual warrant was legal and deals with what happens with information obtained through a warrant and. Jarvis had nothing to do with getting a search warrant.”

CRA’s probe into B.T. Céramiques and its officials overstepped the boundaries from an audit into a criminal investigation when a tax official obtained information that some civil servants working for the tax authority might have been corrupted. On April 2008, CRA officials asked the RCMP for assistance because they expected search warrants would be needed. Defence argued however that before the RCMP became involved in the matter two different CRA divisions – one that investigated civil tax matters and another that handled criminal investigations, both of which were headed by the same person – worked closely together.

Justice Larochelle held that the defence proved by a “preponderance of the evidence” that the purpose of the CRA investigation, which eventually became known as Project Legaux, was to investigate B.T. Céramiques as well as to conduct a criminal investigation into certain CRA civil servants. Justice Larochelle noted that when B.T. Céramiques’ accountant asked CRA officials whether the audit had turned into a criminal investigation, the tax authority denied it. Even the CRA’s so-called Information, a legal document that spells out the grounds for requesting a search warrant, did not paint a true picture of the origin and circumstances surrounding the investigation, noted Justice Larochelle in Agence du Revenu du Québec et Sa Majesté La Reine c. B.T. Céramiques et Francesco Bruno et Gisella Palmerino et Alfredo Magalhaes et Rodolfo Palmerino (540-61-061227-135).

“CRA’s conduct is highly reprehensible,” said Justice Larochelle. The Income Tax Act grants the fiscal authority with “wide discretionary powers in terms of its application and execution. The corollary is the obligation to use it judiciously, in a transparent way and with respect to the Constitution. This case demonstrates that the investigation conducted under the guise of an audit lasted a year. Despite the red flags that were raised and the availability of resources, the case was not re-directed towards an investigation that respected the rules,” added Justice Larochelle.

According to Martin Delisle, a Montreal tax litigator with De Grandpré Chait LLP, the ruling is a “serious notice or reminder” to both federal and provincial tax authorities that they must be transparent and conduct “legally” their audits and investigations. “It’s also a serious reminder that tax authorities cannot conduct investigations under the cover of a regular audit,” said Delisle.

Justice Larochelle also held that the evidence obtained by Revenue Quebec during the course of its own probe against the same company and individuals was inadmissible because it originally emanated from the CRA investigation. That finding seems to suggest that the “fruit of the poisonous tree” doctrine, an American doctrine first described in 1920, too applies in Canadian tax law even though Revenue Quebec argued that this doctrine does not apply either in Canada or in Quebec, said Mostovac. The doctrine holds that if the source (or the tree) of the evidence is tainted, then anything gained (or the “fruit”) from it is tainted as well, noted Mostovac.

“We showed that the tree and the roots were poisoned from day one and that Revenue Quebec was not entitled to the evidence even though they asserted they had acted in good faith and that they should be entitled to use this evidence even though Revenue Canada could not use the information,” said Mostovac.

The ruling also underscores the impractical nature of the seven-prong test elaborated by the SCC in Jarvis to help determine when an inquiry’s purpose is to investigate penal liability, notes Paul Ryan, a Montreal tax lawyer with Ravinsky Ryan Lemoine LLP. Taxpayers often cannot figure out when an audit becomes an investigation, in large part because the Jarvis test is objective and not subjective. “It’s never easy to distinguish at what point in time a civil audit turns into an investigation,” said Ryan. “The Jarvis test in practical terms is not very clear, particularly since when they launch a criminal probe they still want to tax you. So which one is predominant? There are more and more lawsuits being launched over this issue.”

Since the B.T. Céramiques investigation lead to other probes, it is widely expected that defence lawyers will have a field day with the Larochelle ruling. B.T. Céramiques was accused of inflating the expenses of other construction companies, including those owned by construction magnate Tony Accurso, through false billing in order to help them reduce their reported revenues. The B.T. Céramiques inquiry also lead to Project Coche, an RCMP investigation that yielded charges against eight CRA auditors based in Montreal. One of the auditors was convicted earlier this summer on charges of breach of trust and extortion while three others are currently at the preliminary inquiry stage.

“If I am the lawyer of a CRA official, and I am convinced that the warrant obtained against my client has as its source the B.T. Céramiques investigation, then I am going to use it to say that this whole thing is poisoned,” remarked Mostovac.

But that may not be as easy to do as it seems, suggested Ryan. It was widely assumed following the Jarvis ruling that a constitutional breach would lead to a stay on charges. But the SCC’s ruling in R. v. Grant, [2009] 2 SCR 353 created a new test for determining whether evidence obtained by a Charter breach should be excluded. “The Grant ruling has considerably narrowed the remedies that exist when there is a breach,” noted Ryan. “A court must assess and balance the effect of admitting the evidence taking into account the seriousness of the Charter infringing state breach against society’s interest in the adjudication of the case against its merits.”

“Head of Quebec accounting firm calls for elimination of small business tax

The Quebec provincial government should follow Manitoba’s lead and eliminate the business tax for small and medium-sized business with net taxable earnings under $500,000 so long as they invest the amounts saved in employment, innovation, and production, suggested the head of a Montreal accounting firm at a tax conference.

The latest Quebec budget has put the province in a better position to grow and prosper by gradually lowering the general corporate tax rate but the provincial government should contemplate abolishing income tax for small businesses to stimulate the economy even more, said Emilio Imbriglio, the president and chief executive officer of Raymond Chabot Grant Thornton.

Quebec govt revenue & spending 2015The Quebec budget of last spring partially heeded recommendations made by the Quebec Taxation Review Committee, a blue-ribbon panel of tax experts headed by noted economist Luc Godbout who proposed a bold overhaul of Quebec’s tax system that would introduce a new tax mix by slashing $5.9 billion in Quebec personal and business taxes while increasing consumption taxes and fees. Modest tax relief is in sight for Quebec small business following the latest provincial budget. General corporate income tax will be gradually reduced from 11.9 per cent to 11.5 per cent over the next five years. SMEs pay a reduced amount and manufacturing businesses in primary industries such as fishing and forestry will see their tax rate drop in half to 4 per cent in 2017.

“The economy in the 21st-century is based on globalization, an economic reality that changes everything and brings into question the traditional notion of taxing small business,” Imbriglio told the audience of tax professionals who attended the TaxCOOP conference in Montreal. “The tax system should provide even more incentives to encourage further investment by wealth creators so it’s important to evaluate the possibility of completely eliminating taxes on SMEs. Those are the issues that elected officials have to grapple with.”

Source: KPMG
Source: KPMG

Imbriglio applauded the Quebec government for following through on another Godbout recommendation by allowing business owners to benefit as of 2017 from a capital gains exemption when selling their primary or manufacturing sector company to a corporation owned by their children or to a non-arm’s length party. But Imbriglio is calling on the government to extend that capital gains exemption to all sectors. “We must go even further for this measure to have a real impact, and extend it to businesses in all of Quebec’s economic sectors,” said Imbriglio, pointing out that a third of Quebec entrepreneurs will be taking their retirement by 2023, and so it is time to “prepare the ground for their successors.”

Godbout, who also spoke at the Montreal tax conference, wants the provincial government to take bolder action, particularly since Quebec heavily taxes its taxpayers. At present, the ratio between tax revenues and GDP is higher in Quebec than the average for the G7 countries and the member nations of the Organisation for Economic Co-operation and Development (OECD), noted Godbout. Quebec’s taxation is also higher than its main North American trading partners with respect personal income tax, corporate income tax, consumption taxes, payroll taxes, and wealth taxes. A telling example is the difference between Ontario and Quebec: if the Quebec government had applied the same income tax system now in place in Ontario, it would have collected $6.5 billion less in tax revenues. The astonishing difference lies with the income tax rates for individuals earning between $30,000 and $100,000. They are the ones who bear the brunt, added Godbout. The only area that Quebec provides a break to its citizens is with electricity rates, where levies are lower than in neighbouring jurisdictions. “Quebec’s tax system is not adapted to the realities of the 21st-century,” remarked Godbout.

Source: KPMG
Source: KPMG

Godbout proposes shaking up the personal income system, beginning by reducing personal income tax by approximately $.4.4 billion. He also urges the provincial government to revamp the personal income tax bracket system, and increase it from four to nine, with lower marginal rates reduced and upper ones left unchanged but applied to a greater income.

The Godbout report also recommended revamping the corporate income tax system . It proposed measures that would lead to a $1.6 billion corporate tax cut, including slashing the pay roll tax by $450 million, that would be funded by a revision of tax expenditures as well as broader recourse to user fees. It also suggests reducing the payroll tax for SMEs from 2.7 per cent to 1.6 per cent, which would reduce their tax burden by $450 million.

More controversially, he proposes an increase in consumption taxes, including raising the provincial sales tax from the current 9.975 per cent to 11 per cent. These increases would generate $2.665 billion in additional tax revenues, said Godbout, who noted that Quebec as well as the rest of Canada pay less tax on goods and services than the average OECD member. “Taxing too much on revenues and less on consumption would not be that serious were it not for the harmful effects it has on our economic growth,” said Godbout.

OECD studies reveal that an increase in capital taxes, corporate income taxes, and personal income taxes undermines growth while a reduction has a positive impact on growth, said Godbout. An increase however in consumption taxes or user fees has a much more limited impact on economic growth. “The idea behind the reforms we proposed is to rely less on taxes that are harmful and rely more on that cause less harm – it seems rather obvious,” said Godbout.

OECD hopes reforms will end era of tax avoidance

An unprecedented international collaboration on tax reform that recently unveiled sweeping plans to crack down on aggressive tax planning by multinational companies has the potential of becoming the biggest shake-up in international tax rules in nearly a century, according to tax professionals.

Endorsed by G20 finance ministers and leaders, the ambitious proposals by the Paris-based Organisation for Economic Co-operation and Development (OECD) aims to close loopholes, increase transparency to assist tax authorities in risk assessments, and restrict the use of tax havens to curb many international tax planning strategies. The plan, known as the Base Erosion and Profit Shifting (BEPS) project, lists 15 specific actions intended to establish coherent rules for corporate income taxation, prevent tax treaty abuse, tackle the tax challenged posed by the digital economy, and amend the world’s 3,000 bilateral tax treaties through a multilateral instrument.

The initiative mandated by the G20 was launched two years ago in the wake of intense political scrutiny and public outcry over the likes of Apple Inc., Google Inc., and Starbucks Coffee Company moving billions of dollars of profits out of higher-tax countries into low or no-tax jurisdictions. The OECD conservatively estimates that profit shifting leads to annual general losses ranging between four per cent and 10 per cent of global corporate tax revenues, or the equivalent between US$100 billion and $240 billion a year.

The confidence citizens have in the fairness of the tax system at large is at stake when there is an overriding perception that multinationals can avoid their tax liability through tax planning, Pascal Saint-Amans, the OECD’s tax director who spearheaded the reform program, told an audience attending a tax conference in Montreal. The OECD proposals are an attempt to ensure that multinationals are taxed where economic activities take place and where value is created, added Saint-Amans.

“The tax system became illegitimate, incomprehensible,” remarked Saint-Amans. “There was a need to make some sense into something that no longer had any. The OECD believes in the virtues of globalization but globalization only can work if there are some sort of regulations. We need to have a change of paradigm in international tax, and I believe that we made so much progress that we can speak about a paradigm change. This is a new era.”

beps timelineThe OECD deserves credit for developing in such a short timeframe a “meaningful and substantive” comprehensive action plan that attempts to establish fair ground rules of competition, said Gabe Hayos, CPA Canada’s vice-president of taxation. “Anytime you come up with something new like this, there will be different perspectives as to whether it is good or it will be a hindrance to trade but I think they did an excellent job for a very difficult initiative,” Hayos told The Bottom Line.

Now the really hard work begins, admits Saint-Amans. The OECD does not have the power to set laws or sign tax treaties so its effectiveness hinges on their widespread and consistent implementation by governments through tax treaties and domestic law, added Saint-Amans. Business is sceptical. Less than a quarter of business leaders believe there will be a global agreement on BEPS, according to a recent survey conducted by Grant Thornton. As points out Hayos, it’s tough enough to reach a bilateral agreement, let alone a multilateral agreement. Yet Hayos is cautiously optimistic. “There’s no question that there is reason to be sceptical because we have never done it before but BEPS itself is an evolution,” said Hayos, who hosted the BEPS discourse at the Montreal TaxCOOP conference. “There will be certain things that will be easier to agree on and they will be the first things that will be included in the multilateral agreement, and then depending on it success there may be other things that are slowly agreed to.”

Some countries, including Australia and the United Kingdom, are already forging ahead and have announced that they will introduce legislation that covers some of the BEPS actions. Other countries like the U.S. have expressed reservations. While it is planning to bring in country-by-country reporting, which will require companies to reveal where they really earn their revenues, hold their assets, employ people, and book their profits, many of the OECD reforms will unlikely – if ever — be adopted before next year’s Presidential election.

The new federal government has yet to provide indications on where it stands on the OECD’s recommendations, though tax professionals believe that Canada will take steps in matters such as country-by-country reporting, interest deductibility reductions, transfer pricing, and treaty shopping. “If the BEPS initiative progresses the way that it is theoretically intended, I think that Canada may well make some changes to the effect that it will have an impact on its multinationals,” said Hayos. “Hopefully not competitively hurting them but making sure that the playing field is level for all of the countries involved.”

BEPS 15 Action PointsCanada should be reluctant, if not wary, before proceeding with many of the BEPS recommendations unless its most significant trading partners, particularly the United States, have enacted comparable amendments, warned Drew Morier, an international tax lawyer with Osler, Hoskin & Harcourt LLP in Toronto. The drive to reach consensus, coupled with the “extremely ambitious” timeframe, has led to many ambiguous recommendations that will invariably be subject to a host of interpretations which may lead countries to draft or interpret the recommendations in a self-serving manner. That in turn may lead to a significant increase in international tax disputes and compliance costs in Canada and around the world, said Morier.

“If you have countries who are enacting rules which they think are responsive to the recommendations but which end up asserting a right to tax more income of multinationals in that country, and if other countries are doing the same thing – then you end up with an increased possibility of more than one country asserting the right to tax the same amount of income,” explained Morier. “That could lead to more cross-border disputes between taxpayers and tax authorities in different countries over who does ultimately have the right to tax that income.”

It doesn’t help that the OECD altogether avoided discussing the most difficult issue in international tax matters — the allocation of taxing revenue between source and residence countries, added Morier. The consensus reached by OECD members therefore likely masks significant differences between countries over who will collect more tax revenue as a result of the proposals, said Morier.

Business in the meantime are caught in the middle, and are concerned. A survey conducted by Thomson Reuters reveals that slightly more than half of multinationals are “proactively” preparing for BEPS while a third are waiting for the OECD project to be completely finalised. However the survey also found that 59 per cent of European-based corporations companies are focused on BEPS planning compared to 48 per cent in the Americas and the Asia Pacific. Another survey reveals that 74 per cent of businesses would welcome guidance by tax authorities. None of which surprises Morier, who said that Osler’s clients are proceeding cautiously, albeit with a “very strong sense” that their international tax planning now has to take the OECD’s initiatives into account. All of which means that tax professionals have their work cut out.

“There is a greater need for tax professionals to stay informed about what’s happening outside of Canada,” remarked Morier. “There is also a greater need for tax professionals in Canada to exercise more judgment about whether something that a client is doing is not only legal but appropriate taking into account the broader international tax perspective.”

Tax competition stirs controversy

Barely a month after the European Commission ruled that Starbucks Corp. and Fiat Chrysler Automobiles NV benefited from illegal tax deals from the Dutch and Luxembourg governments, cross-border tax avoidance will be the subject of yet more intense scrutiny after European Union lawmakers decided recently to quiz 11 multinational corporations over sweet-heart tax deals with governments.

Sophisticated tax avoidance schemes, under increasing political scrutiny as the likes of Apple Inc., Google Inc., and Wal-Mart Stores Inc. shift billions of dollars of profits out of higher-tax countries into low or no-tax jurisdictions, comes with a hefty price. The Organisation for Economic Co-operation and Development (OECD) conservatively estimates that profit shifting costs the world between US$100 billion and $240 billion in lost tax revenues. Another study revealed that the 500 largest U.S. companies hold more than US$2.1 trillion in accumulated profits offshore to avoid U.S. taxes, and would collectively owe approximately US$620 billion in U.S. taxes if they repatriated the funds.

While multinationals are under growing public criticism for using tax avoidance strategies such as assigning valuable patent rights to shell companies based in tax havens or receiving interest deductions for payments made to their own subsidiaries, tax competition too is responsible for the dire situation, said Peter Dietsch, a professor at the Université de Montréal and author “Catching Capital – The Ethics of Tax Competition.” Tax competition, a phenomena that has really taken off over the past two decades, occurs when countries strategically design fiscal policy to attract capital from abroad.

Tax on corporate profitsA controversial practice, tax competition undermines fiscal autonomy which holds that states should be able to decide for themselves the size of the state relative to its gross domestic product and the level of distribution, added Dietsch. Some countries have adopted tax competition to attract portfolio capital from abroad, using bank secrecy as an enticement to avoid paying taxes. Others have attempted to attract paper profits of multinationals by encouraging strategies such as transfer pricing or inter-company loans to transfer profits from one jurisdiction to another like Luxembourg. “Both the tax evading individual and the tax avoidance multinational are free riding on the provision of public goods and public infrastructure where they reside or produce,” asserted Dietsch, who added that there are other countries, with Ireland being the best example, who use a different tack and try to “lure” and entice multinationals to set up shop in their country in exchange for low corporate tax rates.

“Tax competition undermines fiscal autonomy because it puts a downward pressure on the tax rates so different countries are affected differently,” Dietsch told an audience of some 200 attending a conference in Montreal that examined the issue of tax competition. “Developed countries can usually compensate by shifting the burden onto less mobile tax like work and consumption and thereby protect their revenues but see rising inequality. Now developing countries are even in a worse situation because they see both lower revenues and higher inequality. So for them both of the aspects of fiscal autonomy are compromised.”

Tax on corporate profits IIExacerbating the issues that surround tax competition is the lack of transparency that shrouds it, according to Allison Christians, a tax law professor at McGill University. While multinationals, the host country “who tries to lure the multinational by any means necessary which can include a nice reduction in tax,” and tax havens are perceived to be the only culprits behind tax competition, there are other players behind the scenes, including the “pushers of capital” who are looking to send capital into countries with low tax rates as well as “agents of the government” who make millions of decisions every year without preying eyes.

“There’s a lot more to this global system that we cannot see,” remarked Christians. “A lot of tax competition plays out in ways that aren’t transparent so we are all trying to figure out who’s doing what to who and when.”

While there is some information, such as regulatory disclosures, that business do make available to the public, much remains concealed, added Christians. The global structures for most multinationals remain opaque as are its intra-firm contracts. Information about tax returns, the positions it has taken, and the reasons behind the decision-making process when filing tax returns are off-limits. Public sector officials are no better. Private rulings between governments and multinationals are veiled as are a “massive amount” of global international tax rules being interpreted in closed forums by competent authorities. “There is a whole world developing around tax treaty arbitration that none of us even knows what goes on because we aren’t even able to know that there is a dispute, and who is arguing and who is judging,” pointed out Christians, who is calling for greater transparency by all actors involved in international tax matters.

Elise Bean, a former staff director and chief counsel in the U.S. Governmental Affairs Permanent Subcommittee on Investigations, can attest to the secrecy behind tax matters. Bean, who headed inquiries into offshore tax avoidance by Apple, Microsoft Corp, and Caterpillar Inc. as well tax shelter sales by professional firms, including KPMG, said simply finding out the facts while conducting investigations turned into a real battle, requiring subpoena after subpoena, interview after interview. “To get information, you have to fight like hell so don’t tell me tax competition is a healthy market force when you can’t find out at all what’s going on,” Bean told the audience.

Ambitious initiatives like the OECD’s base erosion and profit shifting project is a step in the right direction, added Bean. The OECD recently published proposals for global reform of international tax rules to thwart aggressive tax planning by multinational companies. One of its proposals calls for country-by-country reporting, which will require companies to reveal where they really earn their revenues, hold their assets, employ people, and book their profits. “For the first time, beginning in 2018, we’re going to be able to get information by multinational corporations about where their economic activity is, and where they are actually paying taxes,” noted Bean.

But much more can be done, said Brian Arnold, senior advisor to the Canadian Tax Foundation. The co-editor of the Bulletin for International Taxation suggests public naming and shaming may be a partial solution. Tougher legislation to “alter the risk-reward analysis” that taxpayers conduct when deciding whether to engage in tax avoidance, better enforcement by tax authorities, and courts who “purposively view transactions realistically” would go a long way to controlling tax avoidance, added Arnold. “If you want multinationals and wealthy individuals to pay more tax, the government has the means that are available to make them do that,” said Arnold. “They are the ones who draft and pass legislation, or not, as the case may be. They are the ones who appoint judges. They are the ones that provide resources for tax administration and justice. So if you want to blame somebody, blame the governments. They are not acting to deal with this problem.”

It might however be time to think outside the box, suggested Tassos Lagios, the managing partner of the accounting and advisory group Richter. Perhaps the solution to the conundrums that tax competition pose is to forget about taxing corporations, said Lagios. “Unfortunately business has changed so significantly over the last 10 to 20 years that tax laws have not adapted quick enough to address this, and therefore creating this conflict,” said Lagios.

In the meantime, however, countries are grappling with the dilemmas forged by tax competition. Germany and other larger European nations cannot afford to lower tax rates, said Katharina Becker, head of the International Tax Division of the Federal Academy of Finance in the Federal Ministry of Finance in Berlin. “In Europe we have smaller countries that favour tax competition because they benefit from it while larger countries favour tax harmonization,” said Becker. “We haven’t come to an agreement in Europe, and I don’t see a compromise in the near future.”